By Kim Jae-kyoung
South Korean automakers should come up with a contingency plan to produce more cars in the U.S. in case the Trump administration levies tariffs on auto imports, according to an American expert on U.S.-Korea trade relations, Sunday.
"If the U.S. were to conclude there is a national security threat from the importation of automobiles into the U.S. it would raise the cost of exporting both vehicles and parts to the U.S., making Korean vehicles less competitive with U.S.-produced vehicles," Troy Stangarone, senior director at the Korea Economic Institute (KEI), said in an interview.
"Korean firms would likely have to look for ways to source and produce their vehicles in the U.S."
Stangarone's view came after U.S. Commerce Secretary Wilbur Ross announced Wednesday he initiated a Section 232 investigation on the car trade after speaking with President Donald Trump.
"There is evidence suggesting that, for decades, imports from abroad have eroded our domestic auto industry," Ross said.
"The Department of Commerce will conduct a thorough, fair and transparent investigation into whether such imports are weakening our internal economy and may impair the national security."
The Washington, D.C.-based expert believes Trump's attempt to impose tariffs on imported vehicles carries two main purposes.
"First, it is likely an effort by President Trump to gain leverage in the NAFTA talks where discussions on autos have not progressed," he said.
"Second, he also likely views it as a way to force companies to produce more vehicles in the U.S."
He expects such a move to have a huge impact on Korea's car manufacturers, such as Hyundai Motor and Kia Motors, which are already suffering from weak demand in the key export market and intensifying competition.
"This could have a significant impact on Korea if the U.S. imposed the suggested 25 percent tariff," he said.
"Trade in automobiles and parts accounts for more than a quarter of Korean exports to the U.S."
However, Stangarone, who specializes in Korean business, economy and politics, warned the Trump administration to be more prudent in its move because it could would also have unintended consequences for the U.S. from two aspects.
Unwanted consequences for US
"In continuing to broaden the definition of national security, the Trump administration may find it only makes it acceptable for other countries to use similar exemptions to protect key sectors and exclude U.S. exports," he said.
"At the same time, if the goal is to ensure production and research in the U.S., the move may only undermine the continued development of the U.S. industry as in the 1970s and 1980s when the Big 3 produced uncompetitive cars and only began improving as foreign competition increased."
Stangarone, who is in charge of congressional affairs and trade at the KEI, expects it won't be easy for Trump's auto tariff plan to go through this time.
He pointed out that at the moment this is just an investigation and it is strongly opposed by both Republicans and the auto industry.
"While Republicans in Congress have not always been successful in halting Trump's moves on trade, it will be difficult for the administration to push a policy that has no domestic support," he said.
"We have already seen this in the case of NAFTA, where many of its auto proposals have failed to gain domestic support in the U.S."
Founded in 1982 in Washington, D.C., the KEI is the first nonprofit U.S. think tank solely dedicated to promoting dialogue and understanding between South Korea and the U.S. on economic, political and security relations.
South Korean automakers should come up with a contingency plan to produce more cars in the U.S. in case the Trump administration levies tariffs on auto imports, according to an American expert on U.S.-Korea trade relations, Sunday.
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| Troy Stangarone |
"Korean firms would likely have to look for ways to source and produce their vehicles in the U.S."
Stangarone's view came after U.S. Commerce Secretary Wilbur Ross announced Wednesday he initiated a Section 232 investigation on the car trade after speaking with President Donald Trump.
"There is evidence suggesting that, for decades, imports from abroad have eroded our domestic auto industry," Ross said.
"The Department of Commerce will conduct a thorough, fair and transparent investigation into whether such imports are weakening our internal economy and may impair the national security."
The Washington, D.C.-based expert believes Trump's attempt to impose tariffs on imported vehicles carries two main purposes.
"First, it is likely an effort by President Trump to gain leverage in the NAFTA talks where discussions on autos have not progressed," he said.
"Second, he also likely views it as a way to force companies to produce more vehicles in the U.S."
He expects such a move to have a huge impact on Korea's car manufacturers, such as Hyundai Motor and Kia Motors, which are already suffering from weak demand in the key export market and intensifying competition.
"This could have a significant impact on Korea if the U.S. imposed the suggested 25 percent tariff," he said.
"Trade in automobiles and parts accounts for more than a quarter of Korean exports to the U.S."
However, Stangarone, who specializes in Korean business, economy and politics, warned the Trump administration to be more prudent in its move because it could would also have unintended consequences for the U.S. from two aspects.
Unwanted consequences for US
"In continuing to broaden the definition of national security, the Trump administration may find it only makes it acceptable for other countries to use similar exemptions to protect key sectors and exclude U.S. exports," he said.
"At the same time, if the goal is to ensure production and research in the U.S., the move may only undermine the continued development of the U.S. industry as in the 1970s and 1980s when the Big 3 produced uncompetitive cars and only began improving as foreign competition increased."
Stangarone, who is in charge of congressional affairs and trade at the KEI, expects it won't be easy for Trump's auto tariff plan to go through this time.
He pointed out that at the moment this is just an investigation and it is strongly opposed by both Republicans and the auto industry.
"While Republicans in Congress have not always been successful in halting Trump's moves on trade, it will be difficult for the administration to push a policy that has no domestic support," he said.
"We have already seen this in the case of NAFTA, where many of its auto proposals have failed to gain domestic support in the U.S."
Founded in 1982 in Washington, D.C., the KEI is the first nonprofit U.S. think tank solely dedicated to promoting dialogue and understanding between South Korea and the U.S. on economic, political and security relations.
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